The debt is blamed on health care delivery shake-ups

It is a bitter blow for the health community, which was depending on borrowing �8m to lessen the impact of a �31m debt.

The money would have been taken out of Cornwall County Council's reserves and paid back by 2009.

But an auditor has prevented it from going ahead because of legal rules which govern primary care trusts which say such arrangements cannot be made.

Quite clearly we'll want to get a clear answer from the government John Lobb, Cornwall County Council

The whole of the NHS in Cornwall is struggling. Primary care trusts, the Royal Cornwall Hospital at Treliske, the South West Health Authority and the Cornwall Partnership Trust are all affected by the �31m deficit.

The debts are bring been blamed on shake-ups of the way health care is delivered.

To solve the funding crisis and reduce the impact of cuts in services, the county's NHS took the unprecedented step of asking the council for the loan.

The request for the loan was approved in principle by the county council's executive committee in September.

But the District Auditor who has been looking into the deal has discovered that the legal rules governing primary care trusts prevent the arrangement from going ahead.

The health bodies involved say it is disappointing and is an issue that needs consideration at a national level.

The leader of the county council, John Lobb, said it was frustrating.

He said: "One of things about being an excellent authority is that it gives us greater freedom to work in partnership with other public bodies.

"The opportunity to work with the health authorities for the common good of Cornwall has its advantages.

"Quite clearly we'll want to get an answer from the government as to their attitude to this."